(Bloomberg) -- Peloton Interactive Inc.'s first quarterly report since its September trading debut may trounce Wall Street expectations on Tuesday, but investors are likely to focus on where the stationary bicycle-maker's business is headed rather than where it has been.
JPMorgan is bullish and MKM Partners is sidelined on the stock, but both expect a beat-and-raise quarter given what they see as “conservative” or “reasonable” estimates.
Shares fell 0.4% on Monday, bringing its total losses since its IPO to 14%. How the stock reacts on Tuesday will depend on Peloton's view of its growth trajectory amid competition concerns.
Peloton Continues Stumbling Despite Slew of New Bulls
Investors have been fixated on Peloton's addressable market, rising losses and competitive pressure, JPMorgan analyst Doug Anmuth wrote in an earnings preview. Beyond ongoing litigation with rivals, SoulCycle parent Equinox is introducing web-based classes, and Nautilus, the owner of Bowflex, is launching its own connected fitness and personalized workout products.
“In terms of the 1Q set-up, we expect the focus to be on Peloton's top-line growth and connected fitness sub trajectory,” Anmuth said. He has a buy-equivalent rating on the stock and a price target of $32.
A revenue beat wouldn't be all that impressive as investors are focused on the company's path to profitability, analysts say. Street estimates for the September quarter currently “imply significant sequential deceleration” in sales growth and gross margin declines, MKM analyst Rohit Kulkarni said. He reiterated his hold-equivalent rating and price target of $24.
“Until the company shows clear signs of profitability, we believe investors would struggle to agree upon a range of revenue multiples, given diverse revenue segments with a complicated, yet one-of-a-kind business model,” he said.
Anmuth agreed that JPMorgan's estimate for $197 million in sales, or 75% year-over-year growth, represents a deceleration from the 104% growth seen in the fourth quarter, but that is largely due to a “tough comp.” Peloton should also benefit from its 30-day in-home free trial launch in early September, he said. That could also be helpful with New Year's fitness goals looming.
Both analysts laid out possible risks that could contradict their views. New studios planned in New York and London and a new product rollout at the Consumer Electronics Show 2020 conference could boost the stock, MKM's Kulkarni said. One risk to JPMorgan's rating and price target is if Peloton struggles to scale beyond “its core affluent U.S.” base, Anmuth said.
Meanwhile, Peloton has attracted more investors from the buy-side with the Fidelity Series Blue Chip Growth, Hartford Growth Opportunities HLS and Franklin Small Cap Growth funds adding A-shares to their respective portfolios late October.
What Bloomberg Intelligence Says:
Peloton's patent infringement lawsuits against Flywheel and Echelon Fitness might not reduce the risk Peloton faces from low-cost rivals in the interactive fitness class arena. The cases will test the strength of Peloton's IP and, in our view, may reveal the scant protection intellectual property provides in the sector.
-Tamlin Bason, BI technology analyst
Click here to view the research
Just the Numbers
- 1Q20 adj. EPS loss 41c (range $1.04 to 26c)
- 1Q20 revenue estimate $199.35 million (range $192 million to $225 million)
- 1Q20 free cash flow burn -$236 million (range $259 million to $213 million)
- 2Q20 adj. EPS loss 38c (range 47c to 26c)
- 2Q20 revenue $393.53 million (range $382 million to $492 million)
Data
- Peloton has 19 buys, 1 hold, and 0 sells; average PT $31: Bloomberg data
- Shares are 14% below its IPO price of $29
Timing
- Earnings Nov. 5 before the market opens
- Call 8:30 am, 1-877-667-0469 password: 2467016
- Conference call website
To contact the reporter on this story: Crystal Kim in New York at ckim426@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jennifer Bissell-Linsk, Tatiana Darie
©2019 Bloomberg L.P.
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